By Lisa Roberts
Everyone wants to invest in high-value assets, like real estate, to protect against inflation since it has risen to levels last seen in 1981. However, a single rental unit might cost hundreds of thousands of dollars. Of course, you can get a loan for an investment property, but you’ll still need to put down 15–30% of the purchase price. Which raises the question: what creative ways to finance your home purchase can you use to pay for the cost of the property?
Apply for a Conventional Mortgage
Applying for a traditional mortgage is the most typical approach to fund a house purchase. Banks and other lending institutions provide this kind of loan, which typically has a lower interest rate than alternative forms of funding. You must have good credit and put down money to be approved for a traditional mortgage. Applying for a loan from the government is another way to pay for a home purchase. These loans come with low-interest rates and flexible credit standards and are provided by the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA).
Take Advantage of Benefits for New Buyers
People who have never bought a home often find it difficult to come up with a down payment, but several incentives are available for first-time buyers. More people than you would imagine are also successfully qualifying for these advantages. You can take advantage of benefits for new homebuyers even if you haven’t owned a home in three years or just shared ownership with your spouse, as advised by our Excalibur Moving and Storage consultants. If your only house is a manufactured home that is firmly anchored to a solid foundation, you can also be eligible for these benefits.
First-time homebuyer programs are supported by the Department of Housing and Urban Development (HUD), and some states offer first-time homebuyer savings programs. Savings accounts with accumulated interest may assist certain purchasers in saving for their down payments for homes more quickly than they otherwise could. Additionally, first-time homeowners are not subject to the 10% early withdrawal penalty when withdrawing up to $10,000 from a regular or Roth IRA. Additionally, there are initiatives to support Native Americans buying their first homes. Just though no one in your family has ever owned a home, do not automatically assume you cannot afford a down payment.
Earn Extra Money by Working Part-Time
Unfortunately, one of the effects of the Great Recession that followed the 2008 financial crisis is that banks no longer provide loans without an income verification requirement, loans requiring no documentation, or mortgages for 100% of the home’s worth. Banks and other lenders these days demand proof of income and a debt-to-income ratio of no more than 43%. The debt-to-income ratio is a metric used to determine how much of your gross monthly income you can use to pay off debt. Your DTI is 30%, or (($1,500 / $5,000) x 100 to create a percentage), for instance, if your gross monthly income is $5,000 and you pay $1,500 toward debt each month. Examples of debt obligations are mortgages, school loans, and credit card debt.
Some lenders will accept a lower down payment, but consumers may pay a higher interest rate as a result. Less than 20% down payment mortgage borrowers must pay PMI, which can add roughly $100 per month to the mortgage payment. The stricter income requirements may force potential borrowers to take on part-time jobs to boost their income. It would be best to put the extra cash into a savings account that you will only utilize for the down payment.
Downsize Your Lifestyle
Downsizing your lifestyle can help you save a lot of money. If you want to free up some funds to put toward a down payment on a home, you can devise creative ways to finance your home purchase by cutting non-essential expenses. For instance, you could downsize to a studio or smaller apartment to save money on utilities and rent. Renting a studio for $600 a month instead of your two-bedroom apartment, which costs $1,200 a month, can save you more than $7,000 a year. If you and your partner have two cars, you might be able to reduce your debt by selling one; it is also good to be realistic about moving fees and costs as expenses to keep in mind if you are moving elsewhere. Reducing your reliance on eating out or purchasing coffee will gradually raise the amount you save.
When investors refer to purchasing something “on terms,” they refer to seller financing. The ultimate objective is to utilize as little of your own money and instead rely on other people’s money, as any experienced investor will tell you. The seller carryback or seller financing is an excellent illustration of this idea.
The property seller agrees to keep the purchase note in this innovative real estate financing. After that, you give them a regular monthly payment until you settle the debt. Of course, this will only be successful with homeowners willing to trade a small amount of immediate cash for several long-term sources of passive income.
Real estate investors frequently hold the belief that it is always preferable to buy rather than rent. The word “always” in this sentiment is problematic. It disregards the possibility of becoming a homeowner through lease option contracts. Leasing option contracts come in handy for real estate investors of all levels when they come across a property they aren’t ready (or sometimes able) to buy.
With a lease option property, investors can negotiate with landlords to buy the property at the end of the lease. This gives investors the chance to increase their equity through regular rent payments and gives landowners the chance to earn interest revenue. A percentage of the rent payments may then be applied toward the down payment for the house, depending on the terms of the contract.
Many people dream of becoming homeowners, but for some, a down payment may make that dream unreachable. There are numerous creative ways to finance your home purchase, even though initially, it may seem impossible to come up with thousands of dollars.